This continues yesterday’s post on the book Comeback (1994), written by two Wall Street Journal’s bureau chiefs, Paul Ingrassia and Joseph B. White. This post focuses on the events at Ford Motor.
Henry II, the grandson of the first Henry Ford, seized control of the company in 1945 after his father’s untimely death and his grandfather’s senility plunged Ford Motor into chaos and crisis. Henry II had ruled with an autocrat’s iron hand for the next thirty-five years, disposing of a succession of presidents—Lee Iacocca was just the most famous—who had displeased and disappointed him. Henry II installed Donald E. Petersen as Ford’s president while Phillip Caldwell was chairman in 1980s. In October 1984, Petersen was designated by Henry II, over Caldwell’s objections, to be the latter’s successor and as CEO.
From obscurity, Petersen’s Ford started stealing headlines from Chrysler and GM with the takeoff of Taurus and the resurgence of the Panther cars. Ford’s incredible earnings feat of 1986 was just the beginning. For three straight years Ford racked up record upon record, hauling in so much money that Ford out-earned General Motors, for the first time after sixty-two years since 1924. Ford closed thirteen factories between 1979 and 1983 slashing about 90,000 workers, but used the crisis creatively. In 1982 Ford signed the auto industry’s first profit-sharing agreement with the United Auto Workers union. In addition to their regular wages, Ford paid its workers an average of $2,100 a piece in profit sharing in 1987; and $3,700 in 1988. On 02 October 1989, Petersen delivered a summary of the thinking that brought him such acclaim:
“When people are treated with decency and respect, confidence and trust, and empowered in the business of the company, they perform better, and they learn more. And that’s the wellspring of continuous improvement, which is one of Ford’s formal Guiding Principles. … In fact, it seems to me that fundamentally sound beliefs and principles are an absolute requirement for progress, whether in the specifics of an individual life or enterprise, or the totality of human relations in our society.”
Ford earmarked $6 billion—from $10 billion in cash it accumulated even after dividend increases, profit-sharing and stock repurchases—for acquisitions between 1985 and 1989 in three lines of business: cars, financing and high technology. Petersen fell into the trap of believing his own public relations, and being distracted by diversification, the car business stumbled. He was also known for his temper, but could separate his outbursts of temper from his preaching about teamwork and dignity in the workplace. He took his cue from management guru W. Edwards Deming, who preached that executives should “drive out fear” from their organizations.
When Henry Ford II died on 29 September 1987, William Clay Ford, Sr., the last surviving grandson of Henry I became the family patriarch and also the vice chairman of Ford Motor. William Clay Ford, Jr. and Edsel B. Ford II, the only son of Henry II, both harbored aspirations to run the company themselves one day, and were elected to the board early in 1988. The feud between the young Fords and Petersen went public after Christmas 1988. While the battle for Jaguar was in full swing in 11 October 1989, the board asked Petersen out. He ‘resigned’ a month later and was succeeded by Ford Vice Chairman Red Poling.
At GSPI, there are no profits to be shared with its employees, as the company struggled since reopening the NSC plant in 2004. From then on to the present, GSPI’s top management have reported that for each year, the company has yet to earn a profit. Although, on there were news reports in August 2008 such as:
Global Steel Philippines Inc. is looking at posting profits for the first time since taking over the steel manufacturing complex of the defunct National Steel Corp. in Iligan City in 2004. … “We will be on the black. We will go positive this year,” Lalit Kumar Sehgal, managing director of Global Steel stated. … The company, however, will register profits only because its parent company—Global Steel Holdings Ltd. of India [sic, should be Dubai]—would condone interest and penalty charges on loans extended to the Iligan-based firm.” (Manila Standard, 2008)
Thus, GSPI’s first-time ever profit, after four years of operations, was not entirely from sales but rather from a new way of booking costs. The MD’s statement was rather revealing: instead of investments from GSHL, GSPI were granted loans and advances that were to be converted to equity? Apparently, the look became overlooked that by 04 December 2008, GSPI declared a plant shutdown after contemplating on a retrenchment months before.
Furthermore, there is even an unwritten rule that the salaries of GSPI local employees were sourced only from products, namely Cold-Rolled Coils and Mill Scraps, sold to domestic markets, while proceeds from particularly those exported were destined to beef up the coffers of the GSHL headquarters. In the same Manila Standard article, Sehgal said while the company exports 70 percent of its production, it could not book higher sales until it produced higher-value products. Sales turnover last year hit $95 million. Indubitably, local employees’ salaries were dependent only on the remaining 30% of proceeds from all of GSPI’s sales, even if they themselves labored hard to produce most of GSPI products. Given that the raw materials—slabs or hot-rolled coils—were sourced outside of GSPI, there is really no telling that these were financed solely from the 70% of the total GSPI sales, and that most of that amount were re-invested in GSPI?
The equivalent of Ford’s Guiding Principles could be the GSPI’s Culture of People and Culture of Management declarations. In reality, however, these statements were never really put to practice, most of the time, probably because except for those local managers, most of the expatriates who signed the same—including the first GSPI president— have already left GSPI.
GSHL does not have an internet presence. It’s investment deals are only picked up by various news media. Being incorporated in the Isle of Man and headquartered in tax-haven Dubai, GSHL books of accounts are as secret as the Forbidden Books of the Bible, reminiscent of the Malaysian’s Wing Tiek of the privatized NSC.
Notes:
Ingrassia, Paul & White, Joseph B. (1994). Comeback: The Fall and Rise of the American Automobile Industry. Place: Simon & Schuster, 1994. pp. 122-143, 215-219. back to text
Ramos, Elaine Ruzul S. (2008). Global Steel set to book profits for the first time. Manila: Manila Standard Today, 13 August 2008. back to text
White, Joseph B. (2009). How Detroit’s Automakers Went from Kings of the Road to Roadkill, Imprimis. 38:2. Hillsdale, MI.: Hillsdale College, February 2009. Adapted from a speech delivered at Hillsdale College on 26 January 2009 at a seminar, “Cars and Trucks, Markets and Government,” co-sponsored by the Center for Constructive Alternatives and the Ludwig von Mises Lecture Series. back to text
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The Grey Chronicles
Kings of The Road to Roadkill: Ford Motor
Tags: Acquisition, Cars, Chrysler, Cold-rolled coil, Comeback, Confidence, Culture of Management, Culture of People, Decency, Diversification, Dividend, Donald E. Petersen, Dubai, Edsel B. Ford II, Export, Financing, Ford Motor, General Motors, Global Steel, Global Steel Holdings Ltd., Global Steel Philippines Inc., GM, GSPI, Guiding Principles, Henry Ford, Henry Ford II, Hot-rolled coil, India, Internet, Investment, Isle of Man, Jaguar, Joseph B. White, Lalit Kumar Sehgal, Lee Iacocca, Mill Scrap, National Steel Corporation, NSC, Panther, Paul Ingrassia, Phillip Caldwell, Profit Sharing, Raw Material, Red Poling, Respect, Salary, Sales Turnover, Slab, Stock Repurchase, Taurus, Technology, Trust, United Auto Workers, W. Edwards Deming, Wall Street Journal, William Clay Ford Sr., William Clay Ford Jr., Wing Tiek
Henry II, the grandson of the first Henry Ford, seized control of the company in 1945 after his father’s untimely death and his grandfather’s senility plunged Ford Motor into chaos and crisis. Henry II had ruled with an autocrat’s iron hand for the next thirty-five years, disposing of a succession of presidents—Lee Iacocca was just the most famous—who had displeased and disappointed him. Henry II installed Donald E. Petersen as Ford’s president while Phillip Caldwell was chairman in 1980s. In October 1984, Petersen was designated by Henry II, over Caldwell’s objections, to be the latter’s successor and as CEO.
From obscurity, Petersen’s Ford started stealing headlines from Chrysler and GM with the takeoff of Taurus and the resurgence of the Panther cars. Ford’s incredible earnings feat of 1986 was just the beginning. For three straight years Ford racked up record upon record, hauling in so much money that Ford out-earned General Motors, for the first time after sixty-two years since 1924. Ford closed thirteen factories between 1979 and 1983 slashing about 90,000 workers, but used the crisis creatively. In 1982 Ford signed the auto industry’s first profit-sharing agreement with the United Auto Workers union. In addition to their regular wages, Ford paid its workers an average of $2,100 a piece in profit sharing in 1987; and $3,700 in 1988. On 02 October 1989, Petersen delivered a summary of the thinking that brought him such acclaim:
Ford earmarked $6 billion—from $10 billion in cash it accumulated even after dividend increases, profit-sharing and stock repurchases—for acquisitions between 1985 and 1989 in three lines of business: cars, financing and high technology. Petersen fell into the trap of believing his own public relations, and being distracted by diversification, the car business stumbled. He was also known for his temper, but could separate his outbursts of temper from his preaching about teamwork and dignity in the workplace. He took his cue from management guru W. Edwards Deming, who preached that executives should “drive out fear” from their organizations.
When Henry Ford II died on 29 September 1987, William Clay Ford, Sr., the last surviving grandson of Henry I became the family patriarch and also the vice chairman of Ford Motor. William Clay Ford, Jr. and Edsel B. Ford II, the only son of Henry II, both harbored aspirations to run the company themselves one day, and were elected to the board early in 1988. The feud between the young Fords and Petersen went public after Christmas 1988. While the battle for Jaguar was in full swing in 11 October 1989, the board asked Petersen out. He ‘resigned’ a month later and was succeeded by Ford Vice Chairman Red Poling.
At GSPI, there are no profits to be shared with its employees, as the company struggled since reopening the NSC plant in 2004. From then on to the present, GSPI’s top management have reported that for each year, the company has yet to earn a profit. Although, on there were news reports in August 2008 such as:
Thus, GSPI’s first-time ever profit, after four years of operations, was not entirely from sales but rather from a new way of booking costs. The MD’s statement was rather revealing: instead of investments from GSHL, GSPI were granted loans and advances that were to be converted to equity? Apparently, the look became overlooked that by 04 December 2008, GSPI declared a plant shutdown after contemplating on a retrenchment months before.
Furthermore, there is even an unwritten rule that the salaries of GSPI local employees were sourced only from products, namely Cold-Rolled Coils and Mill Scraps, sold to domestic markets, while proceeds from particularly those exported were destined to beef up the coffers of the GSHL headquarters. In the same Manila Standard article, Sehgal said while the company exports 70 percent of its production, it could not book higher sales until it produced higher-value products. Sales turnover last year hit $95 million. Indubitably, local employees’ salaries were dependent only on the remaining 30% of proceeds from all of GSPI’s sales, even if they themselves labored hard to produce most of GSPI products. Given that the raw materials—slabs or hot-rolled coils—were sourced outside of GSPI, there is really no telling that these were financed solely from the 70% of the total GSPI sales, and that most of that amount were re-invested in GSPI?
The equivalent of Ford’s Guiding Principles could be the GSPI’s Culture of People and Culture of Management declarations. In reality, however, these statements were never really put to practice, most of the time, probably because except for those local managers, most of the expatriates who signed the same—including the first GSPI president— have already left GSPI.
GSHL does not have an internet presence. It’s investment deals are only picked up by various news media. Being incorporated in the Isle of Man and headquartered in tax-haven Dubai, GSHL books of accounts are as secret as the Forbidden Books of the Bible, reminiscent of the Malaysian’s Wing Tiek of the privatized NSC.
Notes:
Ingrassia, Paul & White, Joseph B. (1994). Comeback: The Fall and Rise of the American Automobile Industry. Place: Simon & Schuster, 1994. pp. 122-143, 215-219. back to text
Ramos, Elaine Ruzul S. (2008). Global Steel set to book profits for the first time. Manila: Manila Standard Today, 13 August 2008. back to text
White, Joseph B. (2009). How Detroit’s Automakers Went from Kings of the Road to Roadkill, Imprimis. 38:2. Hillsdale, MI.: Hillsdale College, February 2009. Adapted from a speech delivered at Hillsdale College on 26 January 2009 at a seminar, “Cars and Trucks, Markets and Government,” co-sponsored by the Center for Constructive Alternatives and the Ludwig von Mises Lecture Series. back to text
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